Image: Anna Chapman
AP
This undated image taken from the Russian social networking website "Odnoklassniki," or Classmates, shows a woman that journalists have identified as Anna Chapman, who appeared at a hearing Monday in New York federal court. Chapman, along with 10 others, was arrested on charges of conspiracy to act as an agent of a foreign government without notifying the U.S. attorney general.
NBC, msnbc.com and news services
updated 6/29/2010 7:33:17 PM ET 2010-06-29T23:33:17

The scandal over an alleged Russian spy ring erupted at an awkward time for a White House that has staked its foreign policy record on improved cooperation with Moscow, but it appeared unlikely to do lasting damage to U.S.-Russian relations.

The administration sought to dampen tensions, while the Russian government offered the conciliatory hope Tuesday that U.S. authorities would "show proper understanding, taking into account the positive character of the current stage of development of Russian-American relations."

The White House response was notably restrained following the dramatic announcement that 11 people assigned a decade or more to illegally infiltrate American society had been arrested. They are accused of using fake names and claims of U.S. citizenship to burrow into U.S. society and ferret out intelligence as Russian "illegals" — spies operating without diplomatic cover.

White House spokesman Robert Gibbs labored to show that the arrests were a law enforcement matter — one not driven by the president, even though President Barack Obama was informed — and played down any political consequences.

Obama was asked about the matter by reporters twice Tuesday. He declined to comment both times.

Gibbs said Obama was aware before he met with Russian President Dmitry Medvedev at the White House on Thursday that the case was under investigation, but the two leaders did not discuss it. Another White House spokesman, Tommy Vietor, said Obama did not know the exact timing of the arrests.

Officials in both countries left the impression that spy rings remain a common way of doing business.

Prime Minister Vladimir Putin offered a message of restraint during a meeting at his country residence with former President Bill Clinton, who was in Moscow to speak at an investment conference.

"I understand that back home police are putting people in prison," Putin said, drawing a laugh from Clinton. "That's their job. I'm counting on the fact that the positive trend seen in the relationship will not be harmed by these events."

The FBI moved on the bust because one of the suspects was scheduled to leave the country, the Justice Department said.

The last suspect, using the name Christopher Metsos and purporting to be a Canadian citizen, was arrested at the Larnaca airport in Cyprus while trying to fly to Budapest, Hungary, police in the Mediterranean island nation said. He was later released on bail.

Metsos, 54, was among those named in complaints unsealed Monday in federal court in Manhattan. Authorities in Cyprus said he will remain there for one month until extradition proceedings begin.

‘Unbelievable things’
Most of the suspects were accused of using fake names and claims of U.S. citizenship while really being Russian. It was unclear how and where they were recruited, but court papers say the operation goes back as far as the 1990s.

Intelligence on Obama's foreign policy, particularly toward Russia, appears to have been their top priority, according to prosecutors, who charged each of the 10 arrested in the U.S. with conspiracy to act as an agent of a foreign government without notifying the U.S. attorney general. None was charged with espionage.

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The 38-year-old son of one of the arrested couples, Vicky Pelaez and Juan Lazaro, said Tuesday outside their home in Yonkers that he didn't believe the allegations.

"This looks like an Alfred Hitchcock movie with all this stuff from the 1960s. This is preposterous," Waldomar Mariscal said. Of the charges, he said, "They're all inflated little pieces in the mosaic of unbelievable things."

Russia: Some are our citizens
Russia's foreign ministry acknowledged Tuesday that those arrested included Russian citizens but insisted they did nothing to hurt U.S. interests.

The ministry earlier angrily denounced the arrests as an unjustified throwback to the Cold War, and senior lawmakers said some in the U.S. government may be trying to undercut President Barack Obama's warming relations with Moscow.

"These actions are unfounded and pursue unseemly goals," the ministry said in a statement. "We don't understand the reasons which prompted the U.S. Department of Justice to make a public statement in the spirit of Cold War-era spy stories."

A member of the Russian Parliament had suggested that elements of the U.S. government opposed to the recent thaw in relations were responsible for the timing of the arrests. But Justice spokesman Dean Boyd noted several critical law enforcement and operational reasons for the timing of the arrests, including one suspect's plans to leave the country.

Court documents indicate that the FBI believed defendant Anna Chapman, arrested Sunday in Manhattan, was about to go to Moscow, but it was not clear that her impending departure was the one that triggered the arrests.

U.S. official: Spying will continue
A senior State Department official told NBC News that the arrests of the alleged spies was just another issue that the U.S. and Russia will have to agree to disagree on — and that until the relationship is more open between the two nations, the spying will continue.

Assistant Secretary of State for European and Eurasian Affairs Phil Gordon said that the U.S. will continue to work with their Russian counterparts, and reminded an assembled press briefing that President Obama made clear when he announced the new way forward with Russia 18 months ago that there would be issues the U.S. and Russia would disagree on, and that the U.S. "should see this spying issue in that context."

Gordon said that the U.S. and Russia "have made significant progress in the 18 months that we have been pursuing this different relationship with Russia, and that "all along we have made clear that there are still things we disagree on and President Obama never fails to bring those things up when he sees his Russian counterpart."

Spy novel in real life
Two criminal complaints outlining the charges were filed in U.S. District Court in New York. They include allegations of false identities, secret communications, money and document handoffs in heavily trafficked public areas like New York's Grand Central Station and Central Park.

The FBI said it had intercepted a message from SVR's headquarters, Moscow Center, to two of the 10 defendants describing their main mission as "to search and develop ties in policymaking circles in US." Intercepted messages showed they were asked to learn about a wide range of topics, including nuclear weapons, U.S. arms control positions, Iran, White House rumors, CIA leadership turnover, the last presidential election, Congress and the political parties, prosecutors said.

The court papers allege some of the ring's members lived as husband and wife; used invisible ink, coded radio transmissions and encrypted data; and employed Hollywood methods like swapping bags in passing at a train station.

The court papers also described a new high-tech spy-to-spy communications system used by the defendants: short-range wireless communications between laptop computers — a modern supplement for the old-style dead drop in a remote area, high-speed burst radio transmission or the hollowed-out nickels used by captured Soviet Col. Rudolf Abel in the 1950s to conceal and deliver microfilm.

Behind the scenes, they were known as "illegals" — short for illegal Russian agents — and were believed to have fake back stories known as "legends."

‘A very interesting target’
In spring 2009, court documents say, conspirators Richard and Cynthia Murphy, who lived in New Jersey, were asked for information about Obama's impending trip to Russia that summer, the U.S. negotiating position on the START arms reduction treaty, Afghanistan and the approach Washington would take in dealing with Iran's suspect nuclear program. They also were asked to send background on U.S. officials traveling with Obama or involved in foreign policy, the documents say.

"Try to outline their views and most important Obama's goals (sic) which he expects to achieve during summit in July and how does his team plan to do it (arguments, provisions, means of persuasion to 'lure' (Russia) into cooperation in US interests," Moscow asked, according to the documents.

Moscow wanted reports that "should reflect approaches and ideas of" four unnamed sub-Cabinet U.S. foreign policy officials, they say.

One intercepted message said Cynthia Murphy "had several work-related personal meetings with" a man the court papers describe as a prominent New York-based financier active in politics.

In response, Moscow Center described the man as a very interesting target and urged the defendants to "try to build up little by little relations. ... Maybe he can provide" Murphy "with remarks re US foreign policy, 'roumors' about White house internal 'kitchen,' invite her to venues (to major political party HQ in NYC, for instance. ... In short, consider carefully all options in regard" to the financier.

The Murphys lived as husband and wife in suburban New Jersey, first Hoboken, then Montclair, with Richard Murphy carrying a fake birth certificate saying he was born in Philadelphia, authorities said.

The complaint says Metsos traveled to the United States to pay Richard Murphy and others using clandestine — and sometimes bizarre — methods.

Money drop
Metsos was surreptitiously handed the money by a Russian official as the two swapped nearly identical orange bags while passing each other on a staircase at a commuter train station in New York, Metsos said.

After giving some of the money to one of the defendants, Metsos drove north and stopped his car near upstate Wurtsboro, N.Y. Using data from a global-positioning system that had been secretly installed in his car, agents went to the site and found a partially buried brown beer bottle. They dug down about five inches and discovered a package wrapped in duct tape, which they photographed and then reburied.

Two years later, video surveillance caught two unnamed secret agents digging up the package.

On Saturday, an undercover FBI agent in New York and another in Washington, both posing as Russian agents, met with two of the defendants — Chapman at a New York restaurant and Mikhail Semenko on a Washington street corner blocks from the White House — prosecutors said. The FBI undercover agents gave each an espionage-related delivery to make. Court papers indicated Semenko made the delivery as instructed but apparently Chapman didn't.

Aside from the Murphys, three other defendants also appeared in federal court in Manhattan — Pelaez and Lazaro, who were arrested at their Yonkers, N.Y., residence, and Chapman.

Pelaez was a reporter and editor for a prominent Spanish-language newspaper videotaped by the FBI contacting a Russian official in 2000 in Latin America, prosecutors said.

The Murphys, Lazaro, Pelaez and Chapman were held without bail but didn't enter a plea. Another hearing was set for Thursday.

‘Very friendly’
Pelaez is a Peruvian-born reporter and editor and worked for several years for El Diario/La Prensa, one of the country's best-known Spanish-language newspapers. She is best known for her opinion columns, which often criticize the U.S. government.

Image: Murphys' home in Montclair, N.J.
Rich Schultz  /  AP
The house in Montclair, N.J., where two alleged spies living as Richard and Cynthia Murphy resided.
"They were very friendly," said Carmen Marrero, 80, who lived next to Pelaez and Lazaro in Yonkers for years. When a tree from the couple's yard fell on Marrero's property, they took care of it promptly. They once invited him to their young son's piano concert. And they threw parties on the Fourth of July.

"I never saw anything suspicious," he said.

Two other defendants, Michael Zottoli and Patricia Mills, were arrested at their Arlington, Va., residence. Also arrested at an Arlington residence was Semenko.

Zottoli, Mills and Semenko appeared before U.S. Magistrate Theresa Buchanan on Monday in Alexandria, Va. The hearing was closed because the case had not yet been unsealed in New York. The three did not have attorneys at the hearing, U.S. attorney spokesman Peter Carr said.

Two defendants, Donald Howard Heathfield and Tracey Lee Ann Foley, were arrested at their Cambridge, Mass., residence Sunday and appeared briefly in Boston federal court Monday. A detention hearing was set for Thursday. Lawyers could not be found or did not return calls.

Deep-cover couples
Oleg Gordievsky, a former deputy head of the KGB in London who defected in 1985, claimed Russia probably has about 50 deep-cover couples — and maybe even up to 60 of them — spying inside the United States.

The 71-year-old ex-double agent said that, based on his experience in Russian intelligence, "there's usually 40 to 50 couples, all illegal."

"The [Russian] president will know the number, and in each country how many — but not their names," said Gordievsky, who said he spent nine years working in the KGB directorate in charge of illegal spy teams.

The Associated Press and NBC's Robert Windrem contributed to this report.

Video: 'Suburban spies': Invisible ink, fake IDs

  1. Transcript of: 'Suburban spies': Invisible ink, fake IDs

    BRIAN WILLIAMS, anchor (Pensacola Beach, Florida): Now to the latest revelations in the strange case we reported on here last night. It's being branded the spies next door. Ten people arrested here in America , accused of spying for Russia , all the while blending right in with their suburban neighbors. NBC 's Andrea Mitchell picks up the story tonight.

    ANDREA MITCHELL reporting: It is a spy story right out of the Cold War , 10 Russian moles living among us, buying homes in typical suburbs like Montclair , New Jersey , and Yonkers , New York , having children all on orders of Moscow central.

    Ms. LOUISE SHALLCROSS (Neighbor): I'm just completely in shock. I mean, I didn't know the family that well. But, you know, it was great to have a stay-at-home dad.

    MITCHELL: There was even a glamorous divorcee, 28-year-old Anna Chapman . According the FBI , some of the accused spies were first trained and coupled off back in the 1990s under Boris Yeltsin when Vladimir Putin was in the old KGB . Putin today, now prime minister, was shocked, shocked that the Kremlin was spying on America . Scolding Bill Clinton , `You've come to Moscow at an excellent time. Your police force if quite out of hand, putting people in jail like that." The FBI was watching the suspects the whole time. Former officials say they never went after classified information, but it had all the elements of a bad spy novel .

    Mr. PAT ROWAN (Former Justice Department Official): Not just the fact that these folks had been inserted into our country under -- with false IDs , fake birth certificates, and they lived for long periods of time, but the trade craft that they used to communicate with their handlers.

    MITCHELL: They used brush passes like in " The Thomas Crown Affair ," special passwords, invisible ink. So what about President Obama 's hamburger summit with President Medvedev only last week?

    Mr. ROBERT GIBBS (White House Press Secretary): I do not believe that this will affect the reset of our relationship with Russia .

    MITCHELL: Experts say the real mystery is why the Russians would spend so much to create false identities for what they could have learned on the Internet . Andrea Mitchell , NBC News , Washington .

Explainer: ‘Such a nice couple’: The spies next door

  • Image: US-RUSSIA-SPY-ARREST
    SHIRELEY SHEPARD  /  AFP - Getty Images
    This drawing dated June 28, 2010 shows five of the 10 arrested Russian spy suspects in a New York courtroom.
    It’s a tabloid editor’s dream come true: Ten people are accused of being undercover Russian spies, and one of them is even photogenic enough to deserve her own slideshow (see The New York Post’s tribute to what they are calling "Sexy Russian Spy Anna Chapman" here).

    But for the neighbors of the 10 people arrested throughout the Northeast, it's more of a nightmare. Who are these people who they had come to trust as a professor, a newspaper columnist, and an architect, among other well-respected professions? Video: FBI arrests 10 in alleged Russian spy ring


    “They’re such a nice couple,” Susan Coke, a real estate agent who sold a home in Montclair, N.J. to two of the suspects — who called themselves Richard and Cynthia Murphy — told The New Jersey Star-Ledger. “I just hope the FBI got it wrong.”

    You can read the the court filing about the alleged spy program here, and the Department of Justice's court complaint against two of the suspects, Mikhael Semenko and Anna Chapman, here.

    Information compiled by msnbc.com's Elizabeth Chuck and Ryan McCartney.

  • Anna Chapman, New York, N.Y.:

    Image: Anna Chapman
    AP
    Anna Chapman
    Dubbed the “femme fatale” of the Russian spy ring, Chapman, 28, said she was the founder of an online real estate company worth $2 million. The daughter of a Russian diplomat (whom her ex-husband dubbed "scary"), she said she had a master's in economics, was divorced and lived a socialite’s life in Manhattan’s Financial District. According to the New York Daily News, Chapman is the one who figured out the spy network was being monitored on Saturday, prompting the FBI to make the arrests Monday. Photographs and videos of her have popped all over the Internet (See a wrap-up on The Washington Post).

    Sources: New York Daily News, New York Post

  • Mikhail Vasenkov (a.k.a. 'Juan Lazaro') and Vicky Pelaez, Yonkers, N.Y.:

    Image: Vicky Pelaez
    AFP - Getty Images
    Vicky Pelaez

    Lazaro, 66, told people for decades that he was born in Uruguay and was a Peruvian citizen, but he is actually Russian and his real name is Mikhail Vasenkov. Lazaro admitted that he sent letters to the Russian intelligence service and that the Russian government paid for his house. He said that although he loved his son, he would not violate loyalty to the "Service," even for his child.

    Neighbors said they knew Lazaro to be an economics professor at a college in New Jersey. An agent for Russia for years, Lazaro brought his wife, Vicky Pelaez, into the conspiracy by having her pass letters to the Russian intelligence service on his behalf.

    Pelaez worked as a columnist for one of the United States' best-known Spanish-language newspapers, El Diario La Prensa. She had come to the U.S. after being briefly kidnapped by a leftist guerrilla group in Peru in 1984.

    Pelaez, 55, lived under her real name and was an American citizen, but now plans to return to Peru after a brief stay in Russia, according to her attorney.

    The couple has two sons: Waldomar Mariscal, 38 (Pelaez's son, Lazaro's stepson), and Juan Jose Lazaro, Jr., 17.

    Both sons told reporters shortly after the arrests that they didn't believe the allegations.

    "This looks like an Alfred Hitchcock movie with all this stuff from the 1960s. This is preposterous," Mariscal said. Of the charges, he said, "They're all inflated little pieces in the mosaic of unbelievable things."

    Source: New York Daily News, The Associated Press, The New York Times

  • Vladimir and Lydia Guryev (a.k.a. 'Richard and Cynthia Murphy'), Montclair, N.J.:

    Image: Alleged Russian Spies Live "Regular" Life In Suburban America
    Getty Images  /  Getty Images
    Richard and Cynthia Murphy

    Richard was an architect, a neighbor told The New Jersey Star-Ledger, and Cynthia had just gotten an MBA. Richard said he was from Philadelphia; Cynthia said she was from New York.

    The couple lived with two young daughters, Katie, 11, and Lisa, 7, in a home on Marquette Road in Montclair that they purchased for $481,000 in the fall of 2008. The two had come to the U.S. in the mid-1990s, first living in an apartment in Hoboken, N.J.

    Cynthia, 39, earned $135,000 a year as a vice president at a Manhattan firm, Morea Financial Services. Alan Patricof, a client of the firm and friend of the Clintons', told The Washington Post he believes he may have been targeted by the ring. Prosecutors said one of her assignments had been to network with Columbia University students.  Her real name is Lydia Guryev.

    Richard, 43, mostly stayed home with the children, neighbors said. His real name is Vladimir Guryev.

    Sources: Star-Ledger, New York Daily News, Politico, The Washington Post

  • Mikhail Kutsik and Natalia Pereverzeva (a.k.a. 'Michael Zottoli and Patricia Mills'), Arlington, Va.:

    Image: A view of River House Apartments, where suspected Russian spies Michael Zottoli and his wife Patricia Mills lived in Arlington
    Molly Riley  /  Reuters
    River House Apartments, where Zottoli and Mills lived in Arlington, Va.

    The husband-and-wife pair lived in Seattle before they moved to Arlington, Va. in October 2009. Zottoli, 41, said he was born in Yonkers, N.Y., and Mills, 36, said she was a Canadian citizen. Records show the two moved around several times between 2002 and 2009. Zottoli was an accountant who constantly took personal calls at work, co-workers told the Seattle Times. Mills was a stay-at-home mom for the couple’s toddler, Kenny. There are reports they also have a 1-year-old.

    “They were the nicest people,” said John Evans, the couple's former apartment manager. “In fact, I wish they had stayed on as tenants. They were really good tenants.”

    When their Seattle apartment was searched in February 2006, FBI agents reportedly found password-protected computer disks that contained a “stenography program employed by the SVR.”

    His real name is Mikhail Kutsik. Her real name is Natalia Pereverzeva.

    Sources: KOMO-TV, Washington Post, The Seattle Times

  • Andrey Bezrukov and Elena Vavilova (a.k.a. 'Donald Howard Heathfield and Tracey Lee Ann Foley'), Cambridge, Mass.:

    Image:Residence owned by Donald Heathfield and Tracey Foley, who were arrested Sunday by the FBI on allegations of being Russian spies.
    Russell Contreras  /  AP
    Heathfield and Foley's home

    The “Boston Conspirators,” as the FBI dubbed them, identified themselves as French-Canadian when they came to the U.S. in 1999.

    Heathfield, 49, received a master’s from Harvard’s Kennedy School of Government in 2000 and worked as a consultant for a Cambridge-based consulting firm called Global Partners Inc — a job that allegedly enabled him to contact a former high-ranking U.S. government national security official. He also had his own consulting company, Future Map Strategic Advisory Services LLC. His real name is Andrey Bezrukov.

    Foley, 47, was a real estate agent who showed houses in the Boston area. She worked on a contract basis for the real estate brokerage Redfin. Her real name is Elena Vavilova.

    They spoke to their two sons, ages 20 and 16, in French when they appeared in court in Boston following the arrests.

    Craig Sandler, a former classmate of Heathfield, told The Boston Globe the Russian spy was friendly and intelligent. Other classmates told The New York Times he had a taste for Scotch and described him as a “flavorful conversationalist” who was smart and funny.

    “It never crossed my mind that he might be a spy,” Sandler said. “But it’s not completely flabbergasting. He seems like a guy who would make a pretty good spy.”

    Sources: Boston Globe, Boston Herald, Harvard Crimson, New York Times

  • Mikhael Semenko, Arlington, Va.:

    Mikhael Semenko, 28, was a travel specialist at Travel All Russia LLC’s in Arlington, Va. He joined the company in 2009 and was described as a friendly and diligent worker who spoke Spanish and Mandarin Chinese, in addition to Russian and English, according to a statement released by the company after his arrest. Semenko’s LinkedIn profile indicates he was particularly interested in non-profits, think tanks, public policy and educational institutions.

    Semenko also has a Twitter account, a Facebook profile, and a blog called “Chinese Economy Today.

    Semenko graduated from Seton Hall University with a degree in international relations in 2008, according to his LinkedIn profile.

    Arrested at his home in Arlington, he was accused of using sophisticated communications equipment and making incriminating statements to an undercover agent posing as a Russian official. According to Britain’s Daily Telegraph, FBI officials met Semenko just blocks from the White House, at the intersection of 10th and H Street. “Could we have met in Beijing in 2004?” the undercover agent asked. “Yes, we might have but I believe it was in Harbin,” Semenko reportedly replied.

    See below for other code words and phrases the suspects used.

    Sources: Daily Telegraph, LinkedIn, Wall Street Journal, The Associated Press

  • Christopher R. Metsos, arrested in Cyprus:

    Image: Photo of Robert Christopher Metsos Russian spy
    Cyprus Police / Handout  /  EPA
    Christopher Metsos

    Very little is known about Metsos’ background or current whereabouts.

    Officials said he arrived in the coastal town of Larnaca in Cyprus on June 17 and was arrested June 29 on an Interpol warrant while he was waiting to board a flight to Hungary. A Cyprus judge decided to release Metsos on $33,000 bail. Metsos failed to show up to a required meeting with Larnaca police following his release, initiating a manhunt for the final member of the group of Russian spies.

    Officials fear Metsos could flee to northern Cyprus, which the AP described as a “diplomatic no-mans-land.”

    Metsos, age 54 or 55, carries a Canadian passport and is what U.S. prosecutors called the “money man” of the group. He is accused of receiving and distributing money to the group and of conspiracy to commit money laundering. According to the U.S. Justice Department, he was given payments by a Russian official affiliated with Moscow's mission to the United Nations in a spy novel style "brush-pass" handoff and buried money in rural New York that was recovered two years later by another suspect.

    Sources: The Associated Press

  • Code words, phrases suspects used

    Following are among the phrases used by the alleged agents, their handlers and, deceptively, by U.S. counter-espionage officials in exchanges designed to verify a contact's identity.

    "Excuse me, but haven't we met in California last summer?"

    "No, I think it was the Hamptons."

    "Could we have met in Beijing in 2004?"

    "Yes, we might have, but I believe it was in Harbin"

    "Excuse me, did we meet in Bangkok in April last year?."

    "I don't know about April, but I was in Thailand in May of that year."

    Source: Reuters

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